Frequently Asked Questions

1. What is an estate plan?

An estate plan is a set of documents established by you, often with the help of a lawyer, to protect yourself, your family, and your assets during your life and after you pass away. Having a proper estate plan can save your loved ones the agony of trying to arrange your financial and personal affairs if you became incapacitated during your lifetime. It also allows you to decide how your assets are to be distributed once you’ve passed away, rather than the laws of intestate succession[1].

2. What are the components of an estate plan?

Most estate plans consist of some or all of the following documents. There may be ancillary documents specific to your situation that need to be prepared, so consulting a qualified estate planning lawyer is crucial during the estate planning process.

a. Will – A Will generally specifies several items. It names the person (the “Executor”) in charge of handling the process of paying your debts, managing your assets, and distributing the remaining assets to your beneficiaries. A Will can also be used to designate a caretaker (the “Guardian”) for any minor children you may have. It’s important to note that a Will does not generally determine how certain assets such as life insurance, retirement plans, or “joint tenancy” accounts are distributed. It also does not determine how assets held in a Living Trust (see below) are distributed.

b. Living Trust – Many people create Living Trusts during their lifetimes to hold their assets. A Living Trust specifies how the trust assets are to be used or distributed during your lifetime and after your death. For example, if you became incapacitated, your Living Trust may specify how you want your trust assets spent for your care. In California, one of the primary motivations for creating a Living Trust is to allow your loved ones to avoid the costly and time-consuming, Court-supervised process known as “Probate.” When utilizing a Living Trust, it is imperative that you “fund” it with assets by re-titling assets such as bank accounts or deeding your real estate to your Living Trust. In many instances you can do this yourself, but in other situations you may need a lawyer or other professional to help you.

c. Advance Health Care Directive – Deciding who will make medical decisions for you is impossible once you become incapacitated. An Advance Health Care Directive allows you to specify who you want as your Agent to make medical decisions for you before that happens. You can also use an Advance Health Care Directive to give your Agent specific instructions regarding your medical care and the disposition of your remains, for example, whether you want additional measures taken to prolong your life, whether you want to donate your organs, or whether you want to be buried or cremated.

d. Durable Power of Attorney – A Durable Power of Attorney is used to name an Agent to make financial decisions on your behalf. Generally, a Durable Power of Attorney is created so that your non-trust assets (e.g., life insurance, retirement, financial accounts in your individual name) can be accessed while you are alive but may be incapacitated.

3. What happens to your assets if you die without an estate plan?

Some types of assets have a predetermined destination when you die. For example, life insurance benefits and retirement accounts generally pass by way of a beneficiary designation forms. If you have life insurance or retirement accounts, it’s a good idea to periodically review the beneficiary designations. Other types of assets, unless the law provides otherwise, will be considered part of your “estate” and probate may be required to transfer those assets to your heirs. There are some exceptions to this[2] so consulting a lawyer after someone close to you has passed away is a crucial step.

4. What is probate?

Probate is the Court-supervised process where a personal representative is appointed to manage the payment of your debts, collection of your assets, and distribution your estate to your beneficiaries or heirs. Unless you owned the types of assets referred to above (e.g., life insurance or retirement accounts with proper beneficiary designations), held title to assets in a specific way (e.g., joint tenancy or community property with right of survivorship), and/or utilized a Living Trust to hold your assets, chances are probate will be required when you pass away. Avoiding probate is ideal for a few reasons.

a. Cost – The cost of probate is state specific; however, in California, the fees are set by law.[3] Personal representatives are paid based on the value of your estate using the following schedule:

1.       4% of the first $100,000
2.       3% of the next $100,000
3.       2% of the next $800,000
4.       1% of the next $9,000,000
5.       0.5% of the next $15,000,000
6.       A “reasonable amount” determined by the Court for anything above $25,000,000

To illustrate , let’s imagine you died only owning a home valued at $1,000,000. Based on the scale above, the fee that your personal representative would be entitled to is $23,000. The calculation ignores any mortgage or debt on the property, so even if there was a $500,000 mortgage on the property, the calculation is still based on $1,000,000. In addition, the lawyer assisting you with the probate is entitled to an equal fee, so after all is said and done, total fees of $46,000 may be paid from your estate (not including other costs such as court filing fees, publication fees, fees for certified documents, etc.), which ultimatey reduces the amount that is left for your beneficiaries or heirs.

b. Time – Again, the process of probate is state specific, but in California, it is rare for probate proceeding to take less than a year to complete. Often, the timeline extends to one and a half or two (or more) years. This is a long time for your beneficiaries or heirs, who may need more immediate access to the assets of your estate.

c. Control – Probate is required regardless of whether you die with or without a Will, except where you owned assets with beneficiary designations that have been properly filled out (e.g., life insurance, retirement accounts, etc.), held title to your assets in a specific way (e.g., joint tenancy, community property with right of survivorship, etc.), and/or you owned your assets through a Living Trust. If you die without a Will in California, the laws of intestate succession provide a specific scheme for the distribution of your assets, which will depend on whether you’re married or in a registered domestic partnership[4] and whether you have descendants.[5] This may not be ideal if you have family members who are incapable of responsibly handling gifts from your estate.

5. Why might a Living Trust be a good idea?

Many people utilize Living Trusts to avoid the hassles and costs of probate and to provide specific instructions on how their assets should be distributed at the time of their death. In addition, because probate is a Court-supervised process, your Will becomes public whereas a Living Trust usually remains private. Typically for a fraction of the cost of probate, it is possible to construct a Living Trust and other documents required for an effective estate plan. In some cases, however, it may not make sense to go through the expense of having a Living Trust prepared. Since consultations with estate planning lawyers are often complimentary, it may be a good idea to obtain a professional opinion about your situation.

6. How much does estate planning cost?

Estate planning costs vary greatly depending on the facts of your situation. In addition, lawyers may have varying fee structures. For example, some lawyers provide estate planning services at a fixed fee, whereas others bill based on the time spent. For most people, estate planning will be on the order of a few thousand dollars.

7. What are the Next Steps I should take?

The information provided above is not legal advice, is general in nature, and may or may not be applicable to your particular situation. You should reach out to a qualified estate planning lawyer to learn more about what you can do to protect yourself, your loved ones, and your assets. If you haven’t already done so, you may request a consultation with us by clicking below.

[1] The laws of intestate succession provide a default system for distributing your assets, if you failed to execute a Will or other estate planning devices such as a Living Trust. In California, Probate Code §§ 6400-6455 lay the general framework for intestate succession.

[2] Some of the exceptions include property held in joint tenancy or community property with right of survivorship. In California and some other states, there are procedures to collect assets of an estate where the value is relatively small. See California Probate Code §§ 13000-13211.

[3] See California Probate Code §§ 10800 and 10810.

[4] See California Probate Code § 6401.

[5] See California Probate Code § 6402.